China Must Open More to Foreign Investment, De Gucht Says

“Important sectors in China remain closed or restricted to
EU investors,” EU Trade Commissioner Karel De Gucht said in a
speech today in Brussels. “The fundamental imbalance between
our openness and China’s restrictiveness plays into the hands of
those in Europe who see Chinese investments as a threat and
argue that we should selectively screen Chinese investments.”

Businesses are turning to China to bolster sales as rising
unemployment and government indebtedness damp confidence in
developed nations. Chinese Premier Wen Jiabao said on Sept. 14
that the country, whose biggest export market is the 27-nation
EU, will continue opening its economy to investors.

Foreign direct investment in China climbed 11.1 percent in
August from a year earlier as the nation’s economic growth
encourages companies from Volkswagen AG (VOW) to Caterpillar Inc. to
expand. China’s economy grew 9.5 percent in the second quarter
compared with a year earlier.

“China’s new national-security screening mechanism was a
retrograde step which risks further aggravating the detrimental
effect on our bilateral trade,” he said.

Investment Treaty

The EU will seek the go-ahead for negotiations on an
investment treaty with China at an Oct. 25 meeting of European
and Chinese leaders, De Gucht said in response to a question
after his speech. The goal would be to improve on agreements
that individual EU nations have with China, according to him.

In his speech, De Gucht also said China’s procurement
market is too closed to foreign companies.

“There is very little access to the market in China,” he
said. “The problem is not so much what is foreseen in Chinese
regulations, but that foreign actors are simply not winning
contracts unless it is in China’s interest.”

The European Commission, the EU’s regulatory arm, will
propose rules by the end of the year to force reciprocity in
public procurement, De Gucht said during the question-and-answer
session. He said a focus may be on contracts for environmentally
clean technologies.

“The idea is to convince the others to open their
market,” he said. “It is not a protectionist measure.”

Chinese Subsidies

In addition, De Gucht in his speech criticized Chinese
subsidies to exporters, holding out the prospect of more EU
tariffs to counter trade-distorting government aid. In May, the
EU imposed anti-subsidy tariffs against China for the first
time, targeting imports of paper with levies as high as 12
percent.

“They need to be addressed in order to ever achieve a
level playing with Chinese companies,” De Gucht said. “We may
also need to take increasingly measures to address the
imbalances created by them, an issue that is very sensitive for
China.”

On a separate front, China must bolster intellectual-
property rights for businesses in practice, De Gucht said.

“Numerous infringements undermine not only European
investments and technology transfer to China, but just as much
China’s ambitions to become an innovative economy,” he said.
“China’s laws and official language point in one direction, and
a still very dire situation on the ground points in another.”